Luo Tuo
Not long ago, the news of a well-located old supermarket in Beijing closing down caused many people to sigh. This supermarket was located in the Wanda Plaza on the east side of Chang'an Avenue in Beijing. It had served as the anchor store of Wanda Plaza for ten years, serving nearby residents. However, residents soon learned that this basic livelihood service would not leave them; the location would be taken over by Hema's X membership store. Industry insiders noticed that this phenomenon is not isolated. While traditional supermarkets like hypermarkets are contracting, Hema is accelerating store openings in multiple locations. Compared to the past hypermarket format, Hema stores often have a smaller footprint. However, wherever Hema is present, there is home delivery service. This has been a clear service label since Hema's inception. Today, home delivery for daily necessities has evolved from a value-added service to nearly standard, with an ever-expanding range of products available for delivery. The differences now lie more in delivery speed and platform.
Looking back at what is happening, Hema's founder Hou Yi believes that whether it's near-field retail, instant retail, or supermarkets opening online stores, it precisely illustrates the profound impact that new retail has had on the retail industry since it was proposed. Although fewer people mention new retail in recent years, its essence has become the action of most enterprises. This is also a form of success.
When discussing new retail, Hema has been the benchmark enterprise since its inception. The outside world even judges the trend and success of new retail based on the development of Hema Fresh. Recently, Hema announced that it achieved quarterly profitability. Hou Yi believes that Hema has proven through its practice that new retail can not only work but also be profitable; it is not a money-burning model. The author believes that Hema's performance today not only proves the feasibility and plasticity of the new retail model itself but, more importantly, Hema operates in the extremely difficult field of fresh food retail (e-commerce), with fresh food as its main category, and can still be profitable, demonstrating the comprehensive feasibility of new retail.
Fighting for Fresh
Fresh food retail has always been considered a trillion-yuan market and the hardest market for internet companies to conquer. The intricacies of managing fresh food are numerous, with many pitfalls. For example, community fresh food stores that focus on offline operations easily fall into diseconomies of scale. That is, when the number of stores is small, individual stores can be profitable, but as the number increases, the scale of goods may not easily translate into improved supply chain efficiency, potentially leading to overall business losses. If the focus is on fresh food e-commerce, they encounter challenges of customer acquisition and high delivery fulfillment costs, making it difficult for the business model to cross the break-even point. It can be said that neither going up nor down works.
Hema Fresh, as the name suggests, cannot avoid the fresh food category. On the surface, Hema adopts an omnichannel model, which can simultaneously leverage the strengths of both models and avoid their weaknesses. However, Hema Fresh's exploration has not been smooth sailing; it has had its wavering moments and even taken detours. In mid-2020, when Hou Yi had a small exchange with the media, he proactively discussed whether stores should sell unpackaged vegetables. Because selling fresh produce in bulk is closer to the wet market experience, it brings familiarity and warmth to some older customers. But today, Hema no longer agonizes over such issues. Walking into a Hema store today, even leafy vegetables are pre-packaged before being placed on the shelves, and today's consumers have long accepted this. This detail reflects a change in the underlying logic of new retail. A core point is that in the future, retail will have no distinction between online and offline; it will choose online or offline products based on different consumer scenarios and needs. The absence of distinction between online and offline refers not only to consumer demand but also to the form of the product itself.
From the store's inception, Hema's products needed to satisfy both in-store sales and home delivery, so standardization of product form was the inevitable path. Standardization increases packaging costs but also brings convenience to consumers. Pre-packaged vegetables show weight and eliminate the need for re-weighing, saving consumers time. It has been proven that after a period of market education, consumers can overlook small packaging costs for convenience.
On the product level, Hema Fresh must make consumers feel that the products offered truly fit their consumption scenarios and needs. Traditionally, traditional supermarkets have emphasized creating a "lively atmosphere," which is not wrong; the core of this atmosphere is to create a homely feel that stimulates consumers' desire to purchase and stock up. In the past, the main user group in traditional supermarkets was often older people with rich product knowledge and life experience, planning meals for their families. However, in today's Hema stores, the consumer base is mainly middle-class and young white-collar workers who need efficiency and precise meal solutions. So, if Hema Fresh has to some extent solved the problem of fresh food profitability, it is not just about "fresh food." On one hand, Hema uses standardization to reduce fresh food loss; on the other hand, Hema provides differentiated supply based on the needs of a typical middle-class family life scenario, including bakery, frozen foods, dairy, and beverages. In these food-related categories, Hema has developed a large number of private brands, forming a differentiated supply with scale effects. For example, in subcategories like dumplings where strong brands exist, Hema has its own distinctive products, adhering to a "fresh" short-shelf-life feature, gaining a good reputation and performance. These products essentially rely on quality to drive repeat purchases.
To provide customized supply according to consumer needs, the supply chain must also change. Hou Yi admitted that Hema has had a tough time over the years but has finally made it through. Regarding the supply chain, Hou Yi stated that Hema clearly opposes a highly dependent KA supply model and insists on differentiated product innovation and supply. Of course, in its early days, Hema Fresh relied on the Alibaba platform, and completing these changes would not have been possible without internet technology and digital solutions.
When discussing digitalization, many companies have experienced the process of adopting and then abandoning a middle platform. But Hou Yi is very firm on this: through the middle platform, they aim to form systematic capabilities to improve the organization and efficiency of the entire company and ecosystem. Currently, Hema has three major middle platforms: the first is the product R&D and procurement middle platform, the second is the production and research technology middle platform, and the third is the logistics supply chain middle platform. Through this system, Hema has achieved structured management of the entire process, moving towards digitalization and ultimately intelligence.
So looking back, the idea that new retail has no distinction between online and offline seems like the most superficial aspect, just having home delivery. But it is also the starting point that triggers a series of deep changes, affecting the whole system. Because it is based on the core category of fresh food and requires omnichannel operation, it must be standardized, must accurately understand user needs, must achieve differentiated supply, and the backend must rely on digital means for operations.
Squeezing Every Drop
In Hema's past development, one thing that puzzled the outside world was its multi-format development. However, in Hou Yi's view, these formats are both internally connected and externally driven by market demands. Hou Yi said: "Hema's current formats, let's categorize them: Hema Fresh, Hema X membership store, including Hema mini, mainly serve the consumption level of Hema's middle-class customers; Hema NB and Hema Outlet stores mainly serve ordinary people's consumption." Beyond these two formats, we still lack several formats. First, we lack a top-tier premium supermarket, so in the second half of this year, we will launch a temporary name, freshippo best. At the same time, we are building a truly integrated wholesale and retail new format called FOD (Food Operation Delivery), targeting B-end customers with very competitive prices."
Please note that when discussing how to do fresh food retail earlier, Hema was more focused on categories and supply chain. But when discussing formats, Hema looks more from the perspective of segmenting customer groups and what other formats consumers need. Product strength and customer segmentation together form the dimensions for Hema to incubate segmented formats.
Hema initially started with fresh food retail. Why not "focus" solely on fresh food stores? First, Hema's fresh food category capability is still a common capability across multiple formats; the difference is only in the specific product positioning for different customer groups. To some extent, the coexistence of multiple formats helps Hema better consume upstream supply chain resources. For example, many fresh products have different grades; Hema simultaneously has Hema Fresh and Fresh Outlet, forming a multi-level supply. "We want to squeeze every drop from fresh food, achieving omnichannel and multi-format development," Hou Yi said.
More importantly, after years of development, Hema Fresh has formed a strong "brand mindshare," which is quite difficult for an eight-year-old company. From the perspective of physical retail, Hema's various formats are also channels. Building a channel brand is sometimes more difficult than building a product brand because it is not easy to form a distinct memory point. But Hema started with omnichannel and gradually formed its own brand memory.
Someone asked Hou Yi, when more and more orders are delivered from stores to homes today, how do you view the role of stores? Hou Yi believes that although Hema has strong internet genes, stores are what cultivate seed users, not relying solely on online. "Hema's stores first establish a brand image. As soon as you open a store, people come in; when the outlet store opens, they line up. Second, they strengthen awareness of your products: what exactly is Hema? So these two are the core elements that stabilize Hema's middle-class consumption. As long as your store is there and people see the products, there is recognition. Additionally, stores are places for experience." From Hou Yi's words, it is clear that in forming brand mindshare, online and offline each play a role, and both are indispensable.
When Hema's many stores form a strong brand mindshare, the traffic problem, which was originally considered an inherent weakness of offline stores, is no longer a problem. With product strength, brand mindshare, and traffic, today's Hema can truly explore more possibilities based on internet company genes—platform development.
Hou Yi pointed out that today's Hema has the ability to do some platform development based on existing formats. "Our dream is to establish a new retail integrated, brand-new e-commerce model," Hou Yi said. Specific plans include: first, establishing a cloud supermarket business, expanding beyond fresh food to include beauty and personal care, small home appliances, health, baby and children's products, toys, etc., expanding to full-category supermarket operations; second, expanding cross-border business, with core categories being beauty, health, maternal and baby, OTC, and imported organic food, achieving true full-category operation for Hema. At the same time, Hema will open platform business on its APP, allowing suppliers to open flagship stores. Additionally, based on local life services, it will vigorously develop food delivery services in addition to laundry, cleaning, repair, and housekeeping.
If Hou Yi's ideas can all be realized, you will indeed find that Hema is becoming a complex and huge life service system. However, the origin of all this remains the simple proposition from many years ago: "Can fresh food retail achieve omnichannel and be profitable?" Hema has persistently sought the answer for eight years, and now the answer is gradually becoming clear.